Suit: Esm Defrauded By Warner

October 1, 1985|By John G. Edwards, Business Writer

Cincinnati financier Marvin Warner and a business associate siphoned $8.7 million from insolvent ESM Government Securities Inc., according to a lawsuit filed in federal court in Fort Lauderdale Monday.

The lawsuit, filed on behalf of ESM trustee Thomas Tew, also alleges that security trades were documented so that ESM could convey $16.6 million to Warner`s now defunct Home State Savings Bank of Cincinnati ``without any consideration whatsoever.``

Through another scheme, ESM eliminated $8 million in losses that Home State should have incurred in a government securities transaction, the suit contends.

``In reality, those accounts were nothing more than conduits for the transfer of monies, with no consideration, from ESM to defendants Warner and (associate Burton M.) Bongard, and to Home State at a time when Home State was suffering severe financial difficulties,`` said the lawsuit signed by attorney Jose Garcia-Pedrosa.

``In several of (Warner`s) no-equity transactions, the orders to buy and sell securities were never placed but were entered after the fact on the books and the records of ESM,`` the lawsuit alleges.

The trustee called that an ``attempt to document trades that never existed, as a means of having ESM pay money to defendant Warner without any consideration whatsover.``

Joseph P. Averill, an attorney for Warner, had no immediate comment on the suit, which contains potentially some of the most damaging accusations yet to surface about Warner`s alleged involvement in ESM.

ESM collapsed in March, owing cities, counties and financial institutions across the country $320 million more than it could pay. A few days later, Home State failed, leading to the closing of several privately insured Ohio thrifts --the most widespread bank holiday since the Depression.

For several years previously, Warner, a business associate of former ESM Chairman Ron Ewton; Bongard, board chairman of Warner`s Home State Savings Bank; and the savings bank itself unfairly profited from ESM transactions, according to the lawsuit.

In another development Monday, U.S. District Judge Jose A. Gonzalez Jr. refused to dismiss a lawsuit Tew filed seeking to recover $9.6 million from the estate of Alan Novick, who was ESM`s chief financial officer when he died nearly a year ago.

Separately, Gonzalez directed Alexander Grant & Co., the accounting firm that is being sued over allegedly false audits of ESM, to release the names of its partners to ESM creditors.

Gonzalez on Monday also accepted a $7.5 million settlement with Ewton and his wife toward more than $15 million Ewton borrowed from ESM that had been proposed last month.